Running Fedora Core 1
vsftpd 2.0.3
vsftpd.conf:
listen=YES
max_clients=50
max_per_ip=4
local_enable=YES
write_enable=YES
local_umask=022
anonymous_enable=NO
anon_upload_enable=NO
anon_mkdir_write_enable=NO
anon_other_write_enable=NO
hide_ids=YES
ls_recurse_enable=NO
ascii_download_enable=NO
async_abor_enable=NO
xferlog_enable=YES
connect_from_port_20=YES
idle_session_timeout=120
data_connection_timeout=300
accept_timeout=60
connect_timeout=60
ftpd_banner=Welcome to FTP
check_shell=YES
userlist_enable=YES
userlist_deny=NO
userlist_file=/etc/vsftpd/permit_users
Problem:
If I configure the server to be anonymous, it works fine.
I attempt to log on as a Local user that is permitted by the "permit_users" userlist and the user authentication fails at the password phase (Reference Example). (Ruled out userlist as causing this: 1. I tested users not in the "permit_users" userlist which were aborted before the password stage and the permitted users were prompted for a password. (working correctly) 2. I also disabled the "userlist_enable" and received the same results (therefore the userlist is not the problem)).
Example:
ftp> o localhost
Connected to localhost (127.0.0.1).
220 Welcome to FTP
Name (localhost:user): user2
331 Please specify the password.
Password:
530 Login incorrect.
Login failed.

Questions:
1. What type of authentication does vsftp use for local users? Is it PAM? I would rather not manage the users through berkely database. I would rather use the local users and groups already built in.
2. Am I missing something in the vsftpd.conf?

I started from ground zero retracing my steps. I referenced back to the builddefs.h and saw that I had PAM configured as define (#define VSF_BUILD_PAM). I went ahead and modified it to be #undef VSF_BUILD_PAM and then ran the make to rebuild the binary.
After that I tweaked the vsftpdconf parmemter check_shell to YES. After performing these steps, I was able to log the user in successfully.